CHICAGO – Even with added revenue from last year’s income tax hike, Illinois entered the new year with an estimated $8.5 billion in unpaid bills and pending Medicaid vouchers, employee health insurance payments, and other obligations.
“One year after Illinois raised individual and corporate income tax rates, the state remains in a precarious fiscal position with persistent payment delays — and the situation is unlikely to significantly improve in the near term,” Comptroller Judy Baar Topinka wrote in her office’s quarterly fiscal report, published Wednesday.
Unpaid bills at the close of the last quarter ending Dec. 31 totaled nearly $4.3 billion, according to the report. But that figure does not include an estimated $2 billion in Medicaid bills that have yet to be submitted to the office for payment. It also fails to include pending corporate income tax refunds, health insurance payments, and interfund borrowing that must be repaid from the general fund.
The level of pending unpaid obligations rises to an estimated $8.5 billion when all the various accounts are counted. The amount of unpaid general fund bills is up several billion dollars over the last quarter ending Sept. 30, and the comptroller does not expect the figure to improve in the last two quarters of fiscal 2012, which ends June 30, because pension payments loom. Last year, the state borrowed nearly $4 billion to cover the payments. Medicaid payments are also expected to dramatically rise in the last two quarters of the fiscal year.
The report noted that Illinois paid all of its fiscal 2011 obligations by the end of December. The General Assembly has for the last two years extended by several months to December the period during which it can pay the previous fiscal year’s bills. The state paid a total of $5.15 billion of fiscal 2011 bills with current fiscal-year revenues.
Base revenues increased by $211 million, for a 1.4% growth rate through the first half of the current fiscal year, with a boost in both income and sales taxes offsetting declining federal assistance and debt payments made on the state’s outstanding tobacco bonds.
Personal income tax collections rose a total of $2.6 billion, or 65.9%, in the first half of the fiscal year, while sales tax climbed by $202 million for a 5.8% growth rate. The temporary income-tax hike approved in January 2011 is expected to generate about $6.5 billion annually.
Federal revenues slipped in the last quarter by $1.6 billion for a 55.2% drop, due in part to the expiration of increased federal reimbursement rates for Medicaid spending. State spending rose by $309 million in October and by $42 million in November before falling by $1.3 billion in December.
The report anticipates little improvement over the next two quarters as Medicaid spending increases and pension payments come due with revenue collections unlikely to keep pace.
“Even if current revenue projections hold, the backlog is not expected to change much from last year,” the report reads. “Additionally, significant bills are currently held outside of the comptroller’s office, and decision makers will continue to be faced with difficult budget decisions as payment delays and backlogs are likely to persist for the near future.”
The report raises similar concerns to recent rating reports. Ahead of the state’s recent $800 million general obligation bond sale, Moody’s Investors Service downgraded the state’s $27 billion of GOs to A2 from A1 and assigned a stable outlook. Fitch Ratings affirmed the state’s A rating and stable outlook. Standard & Poor’s affirmed its A-plus rating and negative outlook.
While the income tax increase last year helped stave off any further deterioration in the state’s fiscal position, Moody’s chastised officials for failing to take meaningful action to further pay down bills or address growing unfunded pension liabilities of $82.9 billion.
“If Illinois does not make meaningful changes to further align revenue and spending and address its accumulated deficit for fiscal years 2012 and 2013, we could lower the rating this year,” S&P analyst Robin Prunty warned in the agency’s report.
Gov. Pat Quinn has vowed to enact pension reforms this year and is expected to continue to press lawmakers to approve a debt issue to pay down the bill backlog. He will deliver his state of the state address early next month and will release a proposed fiscal 2013 budget later in February.